Sunday, January 13, 2013

Congress: Smaller Paychecks for Workers

New Year’s
Day has come and gone; the impending “fiscal cliff” disaster that so occupied
the fears of politicos and businessmen throughout the country has, at the 11th hour,
been averted by heroic deal-making by Republican and Democratic
legislators. They made some “tough decisions” in the face of the
(manufactured) crisis that was facing the country. And they passed a bill that
managed to both not solve any of the debt problems that led to the mess in the
first place (in fact, the deal will increase the budget deficit) and to set
the stage for further assaults on social programs and working people in general
in the very near future.

The deal,
known as the American Taxpayer Relief Act of 2012, is obviously focused mostly
on the tax revenue side of the budget equation. It has a number of provisions,
of which the most important are:

Permanency
of the Bush Tax Cuts

The income
tax cuts signed into law by President Bush in 2001 were one of the three major
factors (the other two being the recession and the expansion of health-care
costs) leading to the explosion of U.S. public debt that caused this entire
mess in the first place. The bill made these tax cuts permanent for everyone
except those earning over $400,000 a year, or only about 1% of taxpayers.

The
Congressional Budget Office (CBO) projects that, as a result, the budget
deficit will increase by $4 trillion over the next 10 years, relative
to the case where all of the Bush tax cuts had expired this year, as originally
scheduled. That shortfall means—you guessed it—another fight down the line over
which social programs should be cut (and those cuts will be deep). The
estate tax was also raised to its Clinton-era levels.

The
Expiration of the Payroll Tax Cut: A payroll-tax holiday was enacted in
2010 as part of a fiscal stimulus program to assist recovery from the
recession, dropping the rate to 4.2% from 6.2%. That means that anybody earning
a paycheck will, despite the rhetoric about “not raising taxes on middle-class
families,” see an increase of an average of a thousand dollars on their tax
bill this year. And, since the payroll tax is a flat tax capped at $106,800,
the increase disproportionately affects those workers earning the least;
someone earning $500,000,000 a year pays the same amount of payroll tax,
$2,274, as someone earning $150,000. And, of course, a two percent tax increase
will hurt a family living on $30,000 a year a lot more than one earning
$150,000.

Taken along
with the Bush tax cuts being made permanent, we can begin to see an outline of
the beneficiaries of tax policy in the United States. What we have is a major tax
increase on all working people, while those earning higher incomes see no
increase in their income tax, and a slight increase in payroll tax (which does
not rise proportionally to income because of the cap).

There is,
of course, a minor bone thrown in, in the form of a marginal tax increase on
small numbers of the very rich, but this does nothing to impact the debt or
improve the lives of working people. And although the payroll tax funds Social
Security, there is no reason that a society as wealthy and productive as ours
needs to squeeze the lives of its workers to fund their bare bones survival in
old age; in addition, with social programs being on the table for debt
negotiation talks later this year, look for enterprising politicians to talk
about raiding the Social Security fund to make up for the general deficit.

Annual
Minimum Tax (AMT) and Tax Deduction Limits: The bill chained the AMT to
inflation, effectively limiting it only to high wage earners, and created
limits on tax deductions for individuals earning more than $250,000 per year.
Although these policies are designed primarily to affect the rich, the overall
impact is likely to be minor.

Tax
Extenders: “Tax extenders” are a bundle of various tax credits and
subsidies that go entirely to corporate recipients, ranging from NASCAR to
Goldman Sachs, ostensibly for research and development. But they include
protection for a type of off-shore financing, tax credits for building
“entertainment complexes,” and other things that should be financed by the
corporations themselves, like basic worker safety and maintenance, but are
shunted off to the taxpayer. So, while the bill passes what amounts to a
massive tax hike on the working class, it works hard to protect the Democrats’
and the Republicans’ primary constituency, the corporations, from, well, … actually
having to produce anything.

Extension
of Unemployment Benefits, Earned Income Tax Credit, and the Child Tax Credit:So
far, so good.

Emergency
unemployment benefits were set to expire on Dec. 31, but they were extended for
another year. The Earned Income Tax Credit (EITC) and Child Tax Credit,
extremely beneficial to working families, were protected from this round,
although the deficit madness is just getting into gear.

There are a
few other provisions in the bill as well, like the prevention of pay cuts to
Medicare doctors and the temporary resolution to the so-called “milk cliff,”
and a pay freeze for members of Congress. The most critical parts of the bill
are the massive tax hike for working people and the fact that the fiscal
cliff has not been averted. That is correct; the permanent changes to the Bush
tax cuts, the permanent expiration of the Payroll Tax Holiday, the year-long
extension of sweetheart corporate subsidies, were all done to push back the
deadline for sequestration until March 1, by which time if a suitable
solution to the debt “crisis” hasn’t been found, the cuts to defense and
non-defense discretionary spending will proceed as normal.

The bill
did nothing to provide for a Fiscal Year 2013 budget (FY 2013 started in
October 2012, so the government has been operating under a “continuing
resolution,” a stop-gap that continues the previous year’s funding levels on an
emergency basis). And finally, before sequestration is set to occur in March,
we will hit the debt ceiling again near the end of February.

Upon the
bill’s passing, the usual suspects came out of the woodwork to defend it as the
best compromise an embattled president could muster:

“[A]nd on
the principle of the thing, you could say that Democrats held their ground on
the essentials—no cuts in benefits—while Republicans have just voted for a tax
increase for the first time in decades,” says Paul Krugman of the deal, while
Ezra Klein is busy, as usual, spinning the deal as another victory on President
Obama’s inevitable road to progressive utopia. To be sure, there are some
things that appear good in the bill, and some things that appear to be a
reasonable compromise.

The real
indicator, however, is the way that the fiscal cliff deal sets the stage for
the upcoming fight on the debt ceiling. Revenues are a done deal; the changes
in revenue structure are permanent, at least through the end of the year, and
we will not hear much more about raising taxes (since we just did!). Despite
being one of the major drivers of debt expansion, the Democrats will defend
PPACA to the death, and the Republicans are certainly not going to fight for
the one solution that will solve the problem of spiraling health costs,—i.e.,
nationalized health care—so we can expect that health care (aside from Medicare
and Medicaid) will not be part of the discussion.

What’s
left? We have the tax increases; the only thing left to talk about is what to
cut and how much—austerity, American-style. You can bet that Congress will be
gunning for Social Security, Medicaid, education, and the whole sweep of social
programs that help ordinary Americans; both sides have indicated a willingness
to go after Social Security and Medicare, programs that were taboo to even talk
about in the context of cuts (Obama’s 2012 budget proposal already attempted to
include a higher age eligibility for Medicare and reduced benefits).

So watch
for February. It looks like, in order to solve the crisis of capitalist
production, both the Republicans and Democrats are looking to throw working
Americans to the wolves.

> The
article above is by Usman Khan Yusufzai and is reprinted from Socialist Action
newspaper.